Looking for a new factoring
company?Unhappy with your current factor?Thinking of leaving your
factoring company?What do I need to know if I want to change factoring
companies?

Here are the answers to these
questions and more:

What is a UCC and how does it apply to me wanting
to change factoring companies?It is standard industry practice for a factoring
company to file a blanket Uniform Commercial Code (UCC) to secure the factor’s
first position security interest on the invoices funded.

The UCC is a way
for factoring companies, banks and commercial lenders to keep straight who is
lending on what assets. Because receivables change on daily basis as new
invoices collect and old invoices are paid, factors must file what is called a
“blanket” UCC filing collateralizing all of your receivables even though you
may only be factoring a portion of your sales.It’s simply impossible for
factors to file a new UCC for each invoice funded. The UCC is simply a flag for
other lenders who chose to run a search indicating a Security Agreement exists
between your company and the factoring company.

The details of your
particular factoring arrangement, such as rates and which accounts are factored,
are outlined in the Security Agreement itself which is not public not. A UCC
is similar to a first mortgage on your business.

The Buyout
ProcessThe
lender with the oldest dated UCC filing is said to be in “First Position” on the
pledged collateral. For example, a factor has first rights to collect payments
on your invoices and all the related surrounding instruments.

Factoring
companies do not take a second position because the lender in first position
could legally take the check right out of the hands of the second position
factor at any time and have every legal right to do so. It’s a similar
concept to ensuring you get the pink slip when purchasing a vehicle. You
wouldn’t want to have someone come along one day, unannounced and take the
vehicle you thought you owned and have every legal right to do so!

To
change factoring companies the old factor must be paid off by the new
factor. Simultaneously the old factor’s lien is released and the
factor’s lien is filed which is similar to refinancing your home.

A
“buyout” is the practice where the new factoring company pays off the old
factoring company using proceeds from your first funding.

The Buyout
Agreement outlines the transition process and is a three party agreement signed
by the old factoring company, new factoring company and your company. In the
Buyout Agreement you approve the “buyout figure” provided by the old factoring
company.

How is the Buyout Figure
Calculated:

The buyout figure is generally calculated by
taking the Gross Receivables Outstanding subtracting any reserves and then
adding in fees due to the old factoring company. If not automatically provided,
it’s best to ask for a breakdown as to how your figure was calculated. This way
you can be sure you understand if any early termination fees or other fees on
top of your usual factoring charges have been included.

It’s important to
understand the buyout figure because once you authorize that amount the old
factor is paid off you have released any recourse to old factor. From that
point forward you are only dealing with the new factor.

If you are going
from a factoring agreement with an 80% advance rate to a 90% advance rate it’s
possible there will be enough proceeds to payoff the old factor without your
having to come up with additional invoices.

How much does the buyout
cost?

If
you are able to submit brand new invoices to the new factoring company which
they can use to payoff the outstanding invoices at your old factor then there
would be no additional cost to you to make the change. Then, as the payments
come in on the old invoices outstanding from the old factor, as part of the
buyout agreement, those payments are forwarded to the new factor who would turn
around and forward those to you as non-factored at no cost.

That is an
ideal situation however, to come up with the payoff figure most companies need
to resubmit at least a portion of invoices already factored with the old factor
to the new factor. If that is the case, the invoices part of the “overlap” will
incur factoring fees from both factors.

Therefore, depending on your fee
structure your factoring fees the first month of the change could be higher than
normal. If you’ll be getting a lower rate from your new factoring company you
can calculate how many months it will take you to recoup that expense and run a
cost benefit analysis.

Depending on the size of the transaction, some
factoring companies offer reduced fees on invoices part of a buyout. You also
want to make sure you give the proper notice of intent to terminate to your old
factor (if required) to avoid any early termination fees to leave their contract
early (refer to the Security Agreement Section titled “termination or early
termination.”

How long does a buyout
take?When
you are changing factoring companies it’s best to plan on the first funding
taking a two to three more days than the normal factoring application setup
process. The added days will be needed at the time of invoice verification and
just before funding as buyout figures are calculated and sent to you for your
approval.

It’s not uncommon for buyout figures to change because fees
continue to accrue and invoices collect so it’s sometimes necessary to get
updated buyout figure at the very last minute. By aligning yourself with a
factoring company familiar with the buyout process they can guide you through
timing to minimize any delays in your funding as a result of the transition.
This is especially critical if you have weekly payroll to meet and cannot spare
a few days delay in funding.

What if my situation is not that
easy?Although it is not common industry practice, it’s
possible the old factoring company and the new factoring company can work
together via an Intercreditor or Subordination Agreement until the old factor is
paid off.

Depending on the circumstances, factors have been able to
“draw a line in the sand” where the old factor has rights to invoices up to a
certain date and the new factor has rights to all invoices after that
date.

Questions you wish you had
asked before you signed up with your current factor:How many factoring companies can I
use at one time? By the way, the universal answer is one (per the Uniform
Commercial Code/UCC).

If I decide I want to change factoring companies how much notice
will I need to give?

What is the
penalty if I want to leave without giving the required notice and please provide
an example of how the fees would be calculated. Caution: be on the look out for
12 month factoring contracts where requiring a certain factoring volume per
month.

For example, a 12 month contract where you’ve agreed to factor
$100,000 per month at a rate of 2% means you promise to pay them $2,000 per
month in factoring fees or $24,000 in total factoring fees over the next
year.

If you want to leave after 6 months they will charge you the fees
you would owe them for the remaining 6 months in the contract which in this
example equals $12,000. That is cost prohibitive for most companies especially
trucking companies working on very low profit margins. You’re stuck!

Even worse, the trucking industry in specific is very volatile and it’s
hard to know how many trucks you will have running for you over the course of
the next year. Can you imagine committing to factor $100,000 per month and then
having some unexpected circumstance require you to let go half of your owner
operators yet you still have to pay the factor $2,000 per month regardless of
how many trucks you are running?

Do you use a bank lock box to
post my customer payments? If so, how many days does it take for one of my
customer’s payments to post to my account from the date the bank receives my
customers check? This process has been known to
artificially inflate the invoice turn and therefore increase your factoring
fees.

How many days do you hold my original invoices before mailing
them out to my customers? The answer should be same day. Invoices
are cash and should not be left sitting around. Not to mention, this is another
way to artificially inflate the invoice turn and increase the factors fees.

How many
different people will I work with at your company? Some factoring companies
have either a lot of turnover or operate call centers where you start with a new
representative every time you call in. Other factors offer dedicated account
administrators to be your point of contact.

Do I need to pay
for postage for you to mail my invoices? That should be included
in the factoring fees.

Do you charge me every time I have a new customer to credit
check?

Do you charge me every time I setup a new
customer?

Do you “batch” my invoices and make me pay fees on all the
invoices submitted in a particular batch until the very last invoice in that
batch has collected?

Do you
start holding reserves once a customer hits 60 days even though I have 90 day
recourse?

We are a nationwide company offering invoice factoring programs the
others can't because of our unique funding capabilities. The others
are restricted by their banks onwhat kind of factoring programs they can
offer.We
are not restricted!

Our
customers tell us that our combination of low rates,flexible
contracts and exceptional service makes us the best choice for
invoicefactoring services.

We have been providing invoice factoring
services nationwide for decades and have clients in hundreds of
industries. Includingfactoring for
Health Care Staffing, Tansportation,Trucking, Manufacturing, Labor
Staffing,and much more.

Unlike
other invoice factoring companies, our program includes the
following features at no additional charge: • 12-24 hour funding on
approved invoices• Highest advance rates in the industry• Credit
analysis on new and existing customers• Continuous collection management and
follow up on factored invoices• Invoice and statement mailing (postage
included)• Account status inquiries anytime; 24/7 online account
access.• We
allow you to electronically submit Invoices• Free credit checking on new
customers at no additional cost

When you become our client you will
be served by our
staff that has an
average of 11 years account receivablefactoring industry experience per
account executive. (Well above the invoice factoring industry
norm!)

You will
have one
dedicated person and his or her assistant who will handleyour account.
Unlike the others, you don't have to start over each time you
call with a new person

Our flexibility allows you to maintain
control:• You select accounts you prefer to factor on
an invoice by invoice basis.• You control total factoring costs by
only factoring on an "as needed" basis. Up to 97% Invoice Factoring Advance Rates:Advance rates are based on overall risk
associated with a particular industry as well as experience and track
record. We hold reserve accounts to accommodateindustries which
typically experience dilution and that we would otherwise not be able to
service. Advance rates range from80% to 97% of the gross invoice amount.

"In all my
years of finance experience I have found you as being the best source,
your personal touch and commitment to us has made our relationship a great
blend of business and friendship." -Omar,
Controller for Utilities Company